U.S. Markets closed

Edited Transcript of MFIN earnings conference call or presentation 13-Nov-18 2:00pm GMT

Q3 2018 Medallion Financial Corp Earnings Call

New York Jan 4, 2019 (Thomson StreetEvents) -- Edited Transcript of Medallion Financial Corp earnings conference call or presentation Tuesday, November 13, 2018 at 2:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Andrew M. Murstein

Medallion Financial Corp. - President, COO & Non-Independent Director

* Larry D. Hall

Medallion Financial Corp. - Senior VP & CFO

================================================================================

Conference Call Participants

================================================================================

* Alexander Roberts Huxley Twerdahl

Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research

* Michael John Grondahl

Northland Capital Markets, Research Division - Head of Equity Research & Senior Research Analyst

* Scott Christian Buck

B. Riley FBR, Inc., Research Division - Research Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good morning, and welcome, everyone, to Medallion Financial's 2018 Third Quarter Earnings Call. By now, everyone should have access to the earnings announcement, which was released prior to this call and which may also be found on the company's website at medallion.com. Before we begin formal remarks, we need to remind everyone that the matters discussed on this call include forward-looking statements or projected financial information that involve risks and uncertainties that may cause the company's actual results to differ materially from those projected in such forward-looking statements and projected financial information. These statements are not guarantees of future performance, and therefore, undue reliance should not be placed upon them. For further information on factors that could impact the company and the statements and projections contained herein, please refer to the company's filings with the Securities and Exchange Commission. Each forward-looking statement and projection of financial information made during this call is based on information available to us at the date of this call. We disclaim any obligation to update our forward-looking statements unless required by law.

I would now like to introduce Andrew Murstein, President of Medallion Financial. Please go ahead.

--------------------------------------------------------------------------------

Andrew M. Murstein, Medallion Financial Corp. - President, COO & Non-Independent Director [2]

--------------------------------------------------------------------------------

Good morning, everyone, and thank you for participating in our third quarter earnings call. Joining me on today's call is our Chairman, Alvin Murstein; our CFO, Larry Hall; and our Director of Investor Relations, Alex Arzeno. As we stated on our last call, we now report as a bank holding company only for accounting purposes and consolidate our wholly-owned or controlled subsidiaries, including Medallion Bank. We now identify as a finance company that primarily conducts its operations as a bank. We believe this provides both our current and future shareholders a more transparent picture of our financial condition and result of operations.

Last quarter, we provided clarity in regard to one of our debt agreements. We are pleased to state that a few days ago, we were successful in achieving structural changes to the specific facility, and going forward, we'll deconsolidate the trust that owns various Medallion loans from our overall results. Larry will go into greater detail, however, we look forward to recording a positive earnings of tangible book value adjustment in excess of $20 million in the fourth quarter as a result of these changes. This was a noteworthy achievement for our company that we are delighted to make public in our third quarter press release.

We will first update everyone on the Medallion portfolio, then turn to the more profitable and growing segments. It is increasingly evident that the portfolio is beginning to stabilize as the provision from Medallion loan losses was $13.3 million in the quarter, down significantly from $24.8 million in the second quarter and $62.7 million in the first quarter when combined with Medallion Bank.

To add to this, we valued our New York City Medallion collateral at a net of $181,000, and New York City wheelchair accessible Medallion collateral at $154,000, exactly the same values we reported last quarter and in line with Q1. As of September 30, 2018, there remain $236 million of net Medallion loans, a 9% decrease from the $258 million we reported last quarter and a 45% decrease from the $430 million reported in the 2017 third quarter. The decline reflects charge-offs of certain loans and their movement to loan collateral in process of foreclosure in addition to the netting of reserves against principal as of April 2, 2018, in connection with the change in reporting status. We are able to state that our Medallion portfolio is its lowest level since 2013's first quarter. 90-plus day delinquencies as a percentage of the portfolio were 4.1%, down to $10 million from $118 million in the 2017 third quarter.

Recoveries still remain a priority, and as previously indicated, we have written off a reserve for over $300 million of Medallion loans over the past several years. We are hopeful to collect as much in recoveries as possible, especially as we pursue personal guarantees, which we have on all of these loans. Payments that are made on these charged-off reserve loans are typically applied to principal, including interest payments we receive on nonaccrual loans.

Additionally, when a loan is restructured or when collateral is sold and financed, we maintain the existing book value of the loan until a reasonable amount of payment history occurs or the loan is paid off, at which point principal recoveries and interest income can begin to be recorded. We feel we are making progress with collections and bringing loans back into a current status, and we hope that will be evident in the future, when and if these recoveries occur.

Before turning to our other 2 segments, we wanted to commend once again both the City Council of New York and the Taxi and Limousine Commission as they continue to construct new legislation to support the taxi industry. There are numerous proposals currently pending with both parties, and we do hope these new regulations will ultimately be approved. If so, that will go a long way towards leveling the playing field between rideshare services and taxi medallion owners. For more details on these proposals, please refer to Slides 14 and 15 in our public PowerPoint on the Investor Relations' homepage of our website.

In addition, the TLC recently announced that they would waive what would be nearly $20 million of ancillary fees to Medallion owners, once again demonstrating the city's commitment to supporting the taxicab industry, as rideshare services are not subject to such fees.

Now let us get into our more profitable and growing segments. First, at the bank we sold $100.9 million of performing consumer loans for cash proceeds of $106.5 million and recorded a gain on the sale of $2.9 million. This was the bank's fourth sale of loans originated in its consumer lending business and consisted primarily of home improvement and recreational vehicle installment loans. These sales continue to provide the company a source of liquidity. As of September 30, 2018, our net consumer portfolio stood at $742 million. However, if you added back the [forced] sales over the last 3 years, our outstandings would have been over $1.1 billion.

Our consumer and commercial segments recorded net income before taxes of $13.2 million in the quarter, a 48% increase from the second quarter. This increase is once again led by solid originations in our RV and home improvement businesses, while our commercial segment recorded $2 million of net interest income. These segments continue to show steady growth. It's important to note that the significant earnings we are getting from our consumer and commercial lending segments are cash earnings, while the losses that we record from Medallion lending are primarily attributed to noncash charge-offs and reserves.

Finally, and to provide some clarity, last month, we filed a Form 8-K for the purpose of renewing our share repurchase program, which needs to be done every 6 months, once as a standalone letter to shareholders and once in the annual proxy statement. We simply want to keep this option open, therefore, we take the time to renew it. Right now, it is not a strong priority with consumer loan returns being so high, however, we continue to evaluate it.

I'll now turn the call over to Larry, who will give some brief highlights regarding the third quarter results.

--------------------------------------------------------------------------------

Larry D. Hall, Medallion Financial Corp. - Senior VP & CFO [3]

--------------------------------------------------------------------------------

Thank you, Andy, and let me take you through some of our third quarter highlights. Once again, we wanted to quickly remind everyone that this is the second quarter we now follow the reporting conventions of bank holding companies, including the presentation of our operating segments. In the quarter, Medallion Financial recorded net interest income of $24.3 million, which was mainly attributable to our consumer lending segment. We are pleased with the strength of our net interest margin, which was 7.94%, one of the highest in the company's history, as the increase in our yield is largely offsetting the increase in deposit cost. As a result of the provision for loan losses in the company's Medallion lending portfolio, the net loss was $4.7 million or $0.19 per share, a solid improvement from both our first and second quarter results. Earnings from the consumer and commercial side of the business were a positive $13.2 million for the quarter. As Andrew mentioned, our net consumer lending portfolio as of September 30, stood at $742 million, down from $791 million last quarter. When including the $101 million sale of consumer loans, the portfolio would have had a 7% increase quarter-over-quarter. We continue to report low loan delinquencies on the consumer side as delinquencies over 90 days past due were 0.45% compared to 0.32% in the prior quarter. The portfolio's average interest rate was 15.18%, up from 14.47% in the 2017 third quarter and the 14.76% we reported last quarter. Our Medallion loans decreased to a net $236 million as of September 30. The average interest rate was 4.35%, a minimal decrease from 4.38% in the 2017 quarter. We provided an additional $13.3 million provision for loan losses, including a $4.9 million increase in the general reserve as well as continued reserve increases for those loans moving past 90 days past due. Once again, we are happy to report we ended the 2018 third quarter with a large drop in Medallion delinquencies.

Our consumer lending -- excuse me, our commercial lending portfolio as of September 30, 2018, was $82.3 million. We recorded net interest income of $2.0 million for the 2018 third quarter compared to $1.7 million last quarter. The average interest rate was 13.9%, in line with last quarter. The commercial lending segment is primarily made up of our mezzanine lending portfolio, which has delivered solid profits for the company.

Lastly, as a result of the deconsolidation of the trust, the company will be able to eliminate more than $63.2 million of Medallion loans and loans in process of foreclosure from our balance sheet, along with $98.5 million of debt and payables the trust owes to the bank in the fourth quarter. In addition, we will recapture approximately $8 million in reserves on the Medallion loans and recognize a gain of about $12 million on the deconsolidation. For this to occur, we settled our limited recourse guarantee through a $1.4 million note payable in installments over the next 5 years. After taxes, the company incurred $6.6 million of losses in the trust for the third quarter, losses that will be recaptured in the fourth quarter as described above and which will not reoccur in any future quarters.

With that, I'll now turn the call back to Andy.

--------------------------------------------------------------------------------

Andrew M. Murstein, Medallion Financial Corp. - President, COO & Non-Independent Director [4]

--------------------------------------------------------------------------------

Thanks, Larry. Operator, we can now begin the Q&A portion of the call.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Okay, our first question comes from Mike Grondahl with Northland Capital Markets.

--------------------------------------------------------------------------------

Michael John Grondahl, Northland Capital Markets, Research Division - Head of Equity Research & Senior Research Analyst [2]

--------------------------------------------------------------------------------

Just first, with the Medallion industry in New York, what are you kind of seeing in terms of fleet utilization? And kind of your thoughts post the New York City Council, some of their actions that you mentioned. Thoughts on Medallion values over the next year or so.

--------------------------------------------------------------------------------

Andrew M. Murstein, Medallion Financial Corp. - President, COO & Non-Independent Director [3]

--------------------------------------------------------------------------------

Thanks, Mike. So we see a lot of transactions occurring in the industry now. I think the number of transactions have tripled or quadrupled from last year. So that's all a very positive sign, there's more liquidity coming into the market. We have new buyers, new hedge funds and investors looking at it. You have a lot of existing fleets looking to expand their business, which is also positive. They're obviously making enough money on their current businesses that they have the ability to expand. Utilization remains high, it's over 90%. I think the cap on Uber the City Council passed a couple of months ago was a game changer for the industry. It showed that they are really behind the cab industry. So overall, I'm a little bit more optimistic now than I have been in the last several years on the direction of the industry.

--------------------------------------------------------------------------------

Michael John Grondahl, Northland Capital Markets, Research Division - Head of Equity Research & Senior Research Analyst [4]

--------------------------------------------------------------------------------

Got it. And then the $13.3 million provision on the Medallion side in the September quarter, what specifically drove that? Was that sort of aging and some of the Medallion sort of continued to age? Or can you just speak to that a little bit?

--------------------------------------------------------------------------------

Andrew M. Murstein, Medallion Financial Corp. - President, COO & Non-Independent Director [5]

--------------------------------------------------------------------------------

We took a general reserve of about $5 million or so. And you had a couple of accounts. It's not -- loans aren't going to 0, delinquencies aren't going to 0. Directionally, obviously, they are heading in the right direction from $60 million to $30 million to $15 million roughly over the last couple of quarters. But you do have some fleets from time to time that hit that 90-day bucket, and therefore, we have to take reserves on it. But the good news is it's significantly less than it has been in the last 6 or 9 months.

--------------------------------------------------------------------------------

Michael John Grondahl, Northland Capital Markets, Research Division - Head of Equity Research & Senior Research Analyst [6]

--------------------------------------------------------------------------------

Got it. Maybe lastly, just volumes in the RV, boat, and home improvement area for loans, are you still feeling good over the next 6 months to a year that, that business can continue to grow? And any update on credit?

--------------------------------------------------------------------------------

Andrew M. Murstein, Medallion Financial Corp. - President, COO & Non-Independent Director [7]

--------------------------------------------------------------------------------

Yes, the business continues to be great for us. It's a very high ROE. It's growing nicely per the data in the release. We can't really project into the future, but the last couple of quarters I think kind of speak themselves, it's just a very strong business with very little new competition, if any new competition. So the yields are still 15% plus and rising. So I think we're in very good shape there.

--------------------------------------------------------------------------------

Operator [8]

--------------------------------------------------------------------------------

Our next question comes from Scott Buck with B. Riley.

--------------------------------------------------------------------------------

Scott Christian Buck, B. Riley FBR, Inc., Research Division - Research Analyst [9]

--------------------------------------------------------------------------------

I just wanted to talk a little bit about the cadence on some of the expense items. I noticed there was a fairly significant uptick in professional fees and collection fees in the quarter. I was just wondering if that has something to do with seasonality. Or where -- there are kind of one-off items in the quarter that causes the elevated level versus 2Q?

--------------------------------------------------------------------------------

Andrew M. Murstein, Medallion Financial Corp. - President, COO & Non-Independent Director [10]

--------------------------------------------------------------------------------

I would say it's more one-off items. We've definitely gotten a lot more aggressive with our customers though, with the borrowers who have been delinquent. So we've been going after them and their personal guarantees, as we have been indicating to everybody we would. So I'm glad that we're finally doing that. So we do have some expenses that eventually probably get paid back to us because the borrower is responsible for all of our legal expenses. But that's kind of the main part of the expense item increase in the quarter.

--------------------------------------------------------------------------------

Scott Christian Buck, B. Riley FBR, Inc., Research Division - Research Analyst [11]

--------------------------------------------------------------------------------

Okay. Helpful. And then in terms of the loan sales, I mean, you guys have been pretty successful selling at a profit. What's the go-forward plan in terms of sales loans? I mean, is there an opportunity here to -- for this to become a larger piece of the P&L?

--------------------------------------------------------------------------------

Andrew M. Murstein, Medallion Financial Corp. - President, COO & Non-Independent Director [12]

--------------------------------------------------------------------------------

I think we look at it opportunistically. There's no set plans to continue doing it or not, to be honest. When we come to market, it's a great liquidity source for us, it's -- we can never have too many options we've learned through the years of liquidity. So if we can sell for premiums of 104, 105 or so, I think it's a good option for us. Long term, it does make a little bit more sense for us to keep it on our balance sheet because the yields are so high. But it's nice to have a balance of being able to grow as well as sell off loans when we need to. So we're going to keep the door open, but long term, I think we'll probably focus a little bit more on retaining them on our balance sheet.

--------------------------------------------------------------------------------

Operator [13]

--------------------------------------------------------------------------------

Our next question comes from Alex Twerdahl with Sandler O'Neill.

--------------------------------------------------------------------------------

Alexander Roberts Huxley Twerdahl, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research [14]

--------------------------------------------------------------------------------

Yes first off, I was wondering, if you could just comment on -- I think someone asked you early on the credit trends on the consumer business, specifically net charge-offs, where they were during the quarter? And how that compares to the historical range for charge-offs on consumer loans?

--------------------------------------------------------------------------------

Andrew M. Murstein, Medallion Financial Corp. - President, COO & Non-Independent Director [15]

--------------------------------------------------------------------------------

Nothing significant for us. It's pretty much business as usual there. Losses, long term, have always been in this range. We haven't seen much, if any, of an uptick there. So we've really increased our credit profiles the last couple of years. The last recession, we came out very well in 2008 and '09 or so. And since that point, as you know, Alex, we added the home improvement lending group, which has average FICO scores of 765 or so. So I feel our credit is a lot stronger today than it was pre and postrecession last time. So we're confident in the direction of the losses being minimal.

--------------------------------------------------------------------------------

Alexander Roberts Huxley Twerdahl, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research [16]

--------------------------------------------------------------------------------

Great. And then there's slight uptick in the yield on the consumer business during the third quarter. Is that more driven by a mix shift on the type of loans? Or is that reflective of the rise in interest rates?

--------------------------------------------------------------------------------

Larry D. Hall, Medallion Financial Corp. - Senior VP & CFO [17]

--------------------------------------------------------------------------------

That's mostly having to do with the mix of the portfolio, a little bit more emphasis on the RV and their prime growth quarter than on the home improvement.

--------------------------------------------------------------------------------

Alexander Roberts Huxley Twerdahl, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research [18]

--------------------------------------------------------------------------------

Okay. And then, I was wondering, Larry, if you could give us a little bit more clarity on what the moving parts behind the margin were this quarter versus last quarter?

--------------------------------------------------------------------------------

Larry D. Hall, Medallion Financial Corp. - Senior VP & CFO [19]

--------------------------------------------------------------------------------

Sure. In this quarter, we actually booked some of the loan premium amortization from the restructuring on April 2. In the second quarter, we did not. In this quarter we did, and it impacted the yield.

--------------------------------------------------------------------------------

Alexander Roberts Huxley Twerdahl, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research [20]

--------------------------------------------------------------------------------

Okay. So is this level of this quarter, is that going to be reflective of what the go-forward margin will look like? Or is this the bookings of the loan premium amortizations that go away?

--------------------------------------------------------------------------------

Larry D. Hall, Medallion Financial Corp. - Senior VP & CFO [21]

--------------------------------------------------------------------------------

It doesn't go away until the loan premium goes away. But it'll probably be a little bit less in quarters going forward.

--------------------------------------------------------------------------------

Alexander Roberts Huxley Twerdahl, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research [22]

--------------------------------------------------------------------------------

Okay. Great. And then just a final question for me, I was wondering if you can give us any sort of commentary on the complexion of the Medallion loans as they sit across the bank, the rest of the company, Trust III, et cetera? Is it fairly homogenous in terms of further distribution of the high LTV loans, et cetera?

--------------------------------------------------------------------------------

Andrew M. Murstein, Medallion Financial Corp. - President, COO & Non-Independent Director [23]

--------------------------------------------------------------------------------

Yes, yes, it's pretty similar across all of the different subs and throughout the bank.

--------------------------------------------------------------------------------

Operator [24]

--------------------------------------------------------------------------------

Our next question comes from Kenneth [Orr] with [Core Value].

--------------------------------------------------------------------------------

Unidentified Analyst, [25]

--------------------------------------------------------------------------------

I just had a couple of questions. One, you had announced a preferred being done at the bank level. And I have 2 parts to that. One is, do you think that we'll see something done this quarter, in the fourth quarter? And two, once you do that, do you think you'll be able to hold on to the consumer loan portfolios of -- rather than selling off $100 million at a time?

--------------------------------------------------------------------------------

Andrew M. Murstein, Medallion Financial Corp. - President, COO & Non-Independent Director [26]

--------------------------------------------------------------------------------

Unfortunately, we can't really talk much about that. We're in a quiet period, so I just got to refer you to the press release that we put out. In the past, we spoke about the preferred offering as being something that many banks look to do and a part of many banks' growth strategies. If they're successful doing it, I think it's very helpful to banks in general.

--------------------------------------------------------------------------------

Unidentified Analyst, [27]

--------------------------------------------------------------------------------

And with the 7:1 leverage or thereabout, you'll be able to keep more of the loan portfolio? Or you'll still look at it opportunistically?

--------------------------------------------------------------------------------

Andrew M. Murstein, Medallion Financial Corp. - President, COO & Non-Independent Director [28]

--------------------------------------------------------------------------------

Well, we [grow on this or that] offering. Let's take that aside for a second. The preference is usually to keep the loans on our balance sheet. With the 15% yield, you're making a lot more long term if you'll hold them on and you don't sell them. So things like retained earnings or excess capital, raising capital will all lead you to that same conclusion, which is to hold the loans on balance sheet if you have the option.

--------------------------------------------------------------------------------

Unidentified Analyst, [29]

--------------------------------------------------------------------------------

Okay. And last question, then I'll go back in the queue, is, you had extended your stock buyback program. And I was just wondering that after you see the Medallion stabilize, do you think you'll be able to take advantage of the stock buyback program?

--------------------------------------------------------------------------------

Andrew M. Murstein, Medallion Financial Corp. - President, COO & Non-Independent Director [30]

--------------------------------------------------------------------------------

Long term, we hope to. In the past, we've done it, I think, as high as $10 per share or so. There's no -- it's a different market today and it's a different company today. So I'm not drawing comparisons. But yes, I mean, I think long term, it should be part of us or any healthy company's strategic plan to buy back stock, especially when they're trading for at or below book value.

--------------------------------------------------------------------------------

Operator [31]

--------------------------------------------------------------------------------

Next question comes from Mike Grondahl with Northland Capital Markets.

--------------------------------------------------------------------------------

Michael John Grondahl, Northland Capital Markets, Research Division - Head of Equity Research & Senior Research Analyst [32]

--------------------------------------------------------------------------------

Larry, do you have, at the end of September, the amount of medallions at the bank and at corporate? Just kind of breaking it out between those 2 buckets. And then is there still roughly a general reserve of about 9% at the bank?

--------------------------------------------------------------------------------

Larry D. Hall, Medallion Financial Corp. - Senior VP & CFO [33]

--------------------------------------------------------------------------------

I don't think I have that information close at hand. I mean, there'll be some more details provided in the Q, which will be going out at the end of business today.

--------------------------------------------------------------------------------

Michael John Grondahl, Northland Capital Markets, Research Division - Head of Equity Research & Senior Research Analyst [34]

--------------------------------------------------------------------------------

Got it. Got it. And then maybe secondly, did you guys say earlier in the prepared remarks what the collections were for previously charged-off medallions in 3Q? Or maybe what your goal is for 4Q?

--------------------------------------------------------------------------------

Andrew M. Murstein, Medallion Financial Corp. - President, COO & Non-Independent Director [35]

--------------------------------------------------------------------------------

No, I don't believe it was in there. I can tell you that we're making good progress there. We don't have numbers but it could be in the Qs, to Larry's point, but they weren't in the script. But directionally, we're making a lot of progress with collections.

--------------------------------------------------------------------------------

Larry D. Hall, Medallion Financial Corp. - Senior VP & CFO [36]

--------------------------------------------------------------------------------

Mike, I can tell you that the bank's net medallion portfolio was about $132 million at the end of the quarter.

--------------------------------------------------------------------------------

Andrew M. Murstein, Medallion Financial Corp. - President, COO & Non-Independent Director [37]

--------------------------------------------------------------------------------

So that obviously is down significantly. When we started the bank as the name Medallion Bank back in 2003, it was probably 90% of the assets. And thankfully, we've continued to diversify away from there. So you're now talking about 12% down from 90%, so the bank's assets. Medallion loans are now only about 12% and headed lower. So again, we're quite pleased with that direction.

--------------------------------------------------------------------------------

Michael John Grondahl, Northland Capital Markets, Research Division - Head of Equity Research & Senior Research Analyst [38]

--------------------------------------------------------------------------------

Yes, for sure. So if you had a $132 million at the bank, you must have had about $103 at corporate, because that would equal the $235 million.

--------------------------------------------------------------------------------

Larry D. Hall, Medallion Financial Corp. - Senior VP & CFO [39]

--------------------------------------------------------------------------------

Sounds right.

--------------------------------------------------------------------------------

Michael John Grondahl, Northland Capital Markets, Research Division - Head of Equity Research & Senior Research Analyst [40]

--------------------------------------------------------------------------------

And I'm okay at math. And then with the DZ situation, that $63.2 million, are those all at corporate?

--------------------------------------------------------------------------------

Larry D. Hall, Medallion Financial Corp. - Senior VP & CFO [41]

--------------------------------------------------------------------------------

They're the loans and the loans in process of foreclosure. They're actually in the trust itself.

--------------------------------------------------------------------------------

Michael John Grondahl, Northland Capital Markets, Research Division - Head of Equity Research & Senior Research Analyst [42]

--------------------------------------------------------------------------------

Yes. So none of those are at the bank, correct? Those are all at corporate?

--------------------------------------------------------------------------------

Larry D. Hall, Medallion Financial Corp. - Senior VP & CFO [43]

--------------------------------------------------------------------------------

None of them are at the bank.

--------------------------------------------------------------------------------

Andrew M. Murstein, Medallion Financial Corp. - President, COO & Non-Independent Director [44]

--------------------------------------------------------------------------------

Correct. So that...

--------------------------------------------------------------------------------

Michael John Grondahl, Northland Capital Markets, Research Division - Head of Equity Research & Senior Research Analyst [45]

--------------------------------------------------------------------------------

I'm sorry, Larry, say that again.

--------------------------------------------------------------------------------

Larry D. Hall, Medallion Financial Corp. - Senior VP & CFO [46]

--------------------------------------------------------------------------------

None of those were at the bank. It's all the Trust III event.

--------------------------------------------------------------------------------

Michael John Grondahl, Northland Capital Markets, Research Division - Head of Equity Research & Senior Research Analyst [47]

--------------------------------------------------------------------------------

Okay. But I'm sorry, I didn't quite hear you. Those are at the bank or not at the bank?

--------------------------------------------------------------------------------

Andrew M. Murstein, Medallion Financial Corp. - President, COO & Non-Independent Director [48]

--------------------------------------------------------------------------------

Not at the bank. They're outside of the bank. They're in a separate trust, a separate subsidiary of the parent company.

--------------------------------------------------------------------------------

Michael John Grondahl, Northland Capital Markets, Research Division - Head of Equity Research & Senior Research Analyst [49]

--------------------------------------------------------------------------------

That's -- okay, that's what I thought. And then maybe just lastly, Andy, earnings power we've talked about over the last year, how are you feeling about that as you've worked through and made a lot of progress in 2018?

--------------------------------------------------------------------------------

Andrew M. Murstein, Medallion Financial Corp. - President, COO & Non-Independent Director [50]

--------------------------------------------------------------------------------

Very good. The consumer business continues to have ROEs north of 40%, 50% before taxes. We're really reducing our Medallion exposure. The consumer business we've stated in press release as before earn as much or more as $2 per share. So the key for us is exactly what we have been doing, which is minimalize on Medallion losses. And again, that's been steadily progressing in the right direction. And then if we can get that business toward breakeven and just have the consumer business and the mezz business, the mezz business we don't talk a lot about, but that's another great business line for us, the ROEs are north of 20% there. $40 million of equity, $10 million or so of earnings last year. So those are the businesses that are really going to carry us into the future, and we're proud of how well they have done.

--------------------------------------------------------------------------------

Michael John Grondahl, Northland Capital Markets, Research Division - Head of Equity Research & Senior Research Analyst [51]

--------------------------------------------------------------------------------

Got it. And maybe 1 last one for Larry. Larry, if I'm looking at your balance sheet in the press release on September 30, you have $160 million of short-term borrowing. I assume the $98.5 million related to DZ is in that number. That's what it'll probably come out of? Is that correct?

--------------------------------------------------------------------------------

Larry D. Hall, Medallion Financial Corp. - Senior VP & CFO [52]

--------------------------------------------------------------------------------

That's a good assumption.

--------------------------------------------------------------------------------

Operator [53]

--------------------------------------------------------------------------------

I would like to turn the floor over to Andrew for closing comments.

--------------------------------------------------------------------------------

Andrew M. Murstein, Medallion Financial Corp. - President, COO & Non-Independent Director [54]

--------------------------------------------------------------------------------

I just wanted to thank everyone for attending this morning's call. We're happy to follow up if your questions were not answered. To that end, please contact our Investor Relations desk at (212) 328-2176 or e-mail at investorrelations@medallion.com. Thanks, everybody, and have a great day.

--------------------------------------------------------------------------------

Operator [55]

--------------------------------------------------------------------------------

This concludes today's conference. Thank you for your participation.